Not just a gravy train
Hardly anyone these days questions whether KiwiSaver is a good deal for members.
The average employee’s contributions are doubled by employer and government contributions. Savings that would otherwise total $100,000 will total $200,000 in KiwiSaver.
Meanwhile, non-employees who contribute $1043 a year get $521 from the government, multiplying their savings by 1.5. For them, $100,000 becomes $150,000. That’s still pretty good.
And the first home incentives add to the attraction for many.
However, economists question the value of the scheme for New Zealand as a whole. Are they right?
The economists argue that KiwiSaver costs a lot, and that total private savings haven’t risen much because people save in KiwiSaver what they would otherwise have saved elsewhere.
That’s what the numbers tell them. But New Zealanders — through letters to my column and questions and comments at seminars or during my RNZ money segment — tell a different story.
KiwiSaver is not just about numbers, but people’s understanding of financial concepts and their feeling of wellbeing. We may not be saving much more, but we’re saving better.
Through KiwiSaver, New Zealanders are learning:
- The power of compounding returns. People are often surprised at how their KiwiSaver balance has grown.
- How well it works to save regularly, regardless of what’s happening in the markets. Early KiwiSaver members passed through the Global Financial Crisis and have come out the other side much better off for having maintained their contributions throughout.
- How past performance is a useless guide to the future. Some have been tempted to switch to last year’s KiwiSaver fund winner. Some have actually made the switch — only to find that the winner didn’t stay a winner. Fortunately, many have learnt that lesson while their balances were small, and their mistakes not too costly.
That’s not to say every KiwiSaver understands all of this. Far from it. Like Robert Frost’s traveller, those of us trying to help people make the most of KiwiSaver have miles to go before we sleep.
Some people still confuse contributions holidays with financial hardship withdrawals, while others take contributions holidays too readily. Some still think KiwiSaver is government guaranteed. One woman recently confused KiwiSaver and Kiwibank. And many in lower-risk funds would benefit from taking on more risk.
But as balances grow, KiwiSaver members are taking more interest. Already, we must be a somewhat more financially savvy population than before 2007, and that trend will surely continue.
And if the government follows through with its plans to auto enrol all employees, that should bring in many of the less financially knowledgable.
There’s another issue here, too. Pride shines through people’s letters and comments, and a growing sense of security. They’re no longer plonking their savings in bank term deposits. They’re investing — watching their savings grow and dip and then grow again.
It’s hard to put a price on pride. That and growing investor knowledge might not figure in economic analysis of KiwiSaver. But they should figure in our over-all assessment of the scheme.
The Commission for Financial Capability is interested in hearing a range of views as part of its review of retirement income policies. Send yours to: [email protected].
Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.